Behind the Dirty Word of 'Nationalization'

It’s one of the biggest challenges facing our new president: just how much more of our money do banks need to survive?

We’ve already thrown hundreds of billions of dollars at them, but the banking system seems to only edge closer to the brink. The values of Wells Fargo, Citigroup and Bank of America have plummeted by as much as 80% since the original bailout package was announced in the fall. Now the fear is that the entire banking sector is in such bad shape that the government may need to step in and take them over.

Nationalization is a dirty word in this country, and questions remain as to whether we will ever get that far. A more likely scenario, according to Wall St. fraud attorney Jeffrey Sonn, is that the Obama administration will create a government “bad bank” that will, in theory, strip out the bad assets from other institutions.

But people should realize that further government intervention, even if it’s the only remaining option, will be detrimental to the talent that is remaining on Wall St. and the ability of financial services companies to recruit the best and the brightest, according to peak performance coach Dr. Doug Hirschhorn. Gifted and talented bankers will leave if their companies are taken over by the government, he says. The question is: is that something we’re willing to concede?

Of course, nationalization of the banks is far from an economic panacea. Jeff Taylor, founder of Monster.com, notes that the government is already running the mortgage companies - do we want them to be in charge of the banks, too? And who says it will even solve the problem? The better option, he says, is to build back the leadership of the private sector.

Jeff Sonn sees it differently. Remember that it was the banks – and their CEOs – that got us here, wheeling and dealing in these complex, toxic assets that even they didn’t fully comprehend (or care to learn). The banks blew it. Time to let the government take a shot.

Inherent in the argument over the pros and cons of a nationalized banking system is the question of whether or not it will work in the eyes of consumers. After all, we cannot fully right the economic ship until consumer confidence returns to some level of normalcy. Perhaps John Ulzheimer, an expert in all things credit, put it best:

We’ll only be on the right track once consumers – and not just those with perfect credit scores – feel that they can go to the bank tomorrow and get a loan. If that means the government needs to take extraordinary steps to ensure that the lending spigot turns back on, then so be it.

In the accompanying video, the Money Desk takes on Steve Bartlett, president and CEO of the Financial Services Roundtable, which represents the 100 largest integrated financial services companies. Bartlett has a decidedly more optimistic take on the health of the banks – but not everyone is convinced.